Another Provident Fund Correction, Government Raises Interest Rate
Last Updated: April 29, 2016 16:32 (IST)
The government has decided that savings of employees accumulated in provident funds will draw an interest rate of 8.8 per cent for the year 2015-16, higher than what it declared just days ago.
The announcement comes after protests by labour unions and the opposition over the government deciding on a rate of 8.7 per cent, ignoring the recommendations of a committee that monitors the massive savings scheme.
Before this, the government was forced to withdraw controversial proposals to tax the withdrawals from EPF (Employee Provident Fund), and to raise the age limit to 58 for an employee to be able to pull out what an employer had deposited in his or her account. Both measures were seen as unfair to millions of salaried workers and provoked outrage among the middle class and labour unions.
Any private firm with more than 20 employees has to participate in the scheme run by Employees’ Provident Fund Organization. A percentage of the employees’ salary is set aside in an account and it accrues interest. Employers have to make a matching contribution.
The interest rate is revised by the government every year.
Source : http://profit.ndtv.com/news/your-money/article-another-provident-fund-epf-correction-government-raises-interest-rate-1400844
Employees Provident Fund rate cut marginally
In a move that will affect some 15.84 crore contributors to the Employees Provident Fund scheme, the government has cut the interest rate for 2015-16 marginally to 8.7 percent from the recommended rate of 8.8 percent.
The new rate came to light in a rather peculiar manner, with Labour Minister Bandaru Dattatreya informing the Lok Sabha about it in a written reply to a question posed by two lawmakers on Monday.
The Minster said the Central Board of Trustee of the Employees’ Provident Fund (EPF) in its 211th meeting on February 16 this year had proposed an interim rate of interest at 8.80 percent to be credited to the accounts contributors for year 2015-16.
But the Ministry of Finance ratified an interest rate of 8.70 percent, he said in the reply to the questions from C.R. Chaudhary of the Bharatiya Jana Party and P. Nagarajan of the All India Anna Dravida Munnetra Kazhagam.
The minister also said that a proposal for comprehensive amendment to the relevant act on provident fund is under consideration, including a cut in the threshold limit for coverage from 20 employees in an organisation currently to 10 employees.
The government has been under criticism for its moves on several social security schemes.
Barely a week after presenting the budget in February, Finance Minister Arun Jaitley was forced to withdraw a proposal to tax 60 percent of provident fund withdrawals made after April 1 this year if they are not re-invested in annuity funds.
Then in a sudden move last month, the interest rates on all small savings schemes, including Public Provident Fund, Kisan Vikas Patra and Senior Citizen Deposits were cut sharply. The finance ministry said this was being done to align these schemes with the market.
Interest rate on Public Provident Fund was cut to 8.1 percent for April 1 to June 30, 2016, from 8.7 percent earlier; that on Kisan Vikas Patra was slashed to 7.8 percent from 8.7 percent; and on schemes for senior citizens to 8.6 percent from 9.3 percent.
Then earlier this month, the National Small Savings Fund (NSSF) loan rate to the Centre as well as states was lowered sharply to 8.8 percent from 9.5 percent to align the same with the previous cut in small savings interest rates.
In fact, the government was also forced to defer another unpopular step.
In February, it had disallowed a full withdrawal of contributions at one go by a member even if he or she was unemployed for two months at a stretch. It also said a subscriber would have to wait till he or she is 57 years old to be able to withdraw up to 90 percent of the accumulated fund. Earlier, the age limit was 54 years.
The first proposal was withdrawn after widespread protests, some of which had turned violent, notably in Bengaluru and Hyderabad. The other one was deferred till July 31.
Source : http://www.business-standard.com/article/news-ians/employees-provident-fund-rate-cut-marginally-116042500947_1.html
Full PF withdrawal before age of 58 difficult in most cases
If an individual ceases employment and remains unemployed for two months after leaving the job, she can now only apply for withdrawal of her share of contribution and interest earned thereon
As per the Budget announcement, it was proposed that taxability on withdrawal of PF would trigger only in respect of the contributions made by the employee on or after 1 April 2016. However, based on the announcements made by the finance minister on 8 March, the above proposal to levy tax on PF withdrawal has been withdrawn.
Therefore, applying the earlier existing tax provision, withdrawal of accumulated PF balance will trigger tax liability if an employee does not render continuous service for five years or more. While determining such period, the time for which service was rendered to the previous employer(s) should also be added if cumulative PF balance with the old employer has been transferred to the account of the new employer.
We have assumed that your current job is your first job or you have not transferred the accumulated PF balance maintained with previous employer to the PF account of the current employer.
As the total period of service is less than five years (i.e., 4 years), tax will be levied on the accumulated PF balance withdrawn in the financial year (FY) of receipt. The aggregate of the employer’s contribution to PF and interest earned thereon will be taxable as salary. Tax deduction claimed under section 80C of the income-tax Act on your own contribution to the recognized PF shall also be taxed as salary. Interest earned on your own contribution shall be taxed as ‘Income from other sources’. Tax rate would depend on your applicable income tax slab in each of the FYs during which the contributions were made. Further, if the total income exceeds Rs.1 crore, surcharge at 12% (this is proposed to be increased to 15%) will be levied. Also, education cess shall be applicable for each of the FYs and will be payable in addition to the basic income tax and surcharge, if any. You can avail relief under section 89.
If you take up a new job and transfer the accumulated PF balance maintained with the current company to the new employer and later on withdraw the balance maintained with the new employer as per PF provisions, while computing the period of continuous service with the new employer, the period of service rendered with the present company will be included.
Further, as per the recent amendment in the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, effective from 10 February 2016, if an individual ceases employment and remains unemployed for two months after leaving the job, she can now only apply for the withdrawal of the employee’s share of contribution and interest earned thereon. The balance amount (employer’s contribution and interest thereon) can be withdrawn as per the new PF provisions, which is at the age of 58 years (subject to exceptions).
Source : http://www.livemint.com/Money/7k3fAMVm4gu9FC88LBWYLK/Full-PF-withdrawal-before-age-of-58-difficult-in-most-cases.html